Spire (SPIR) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Spire Global, Inc., including the balance sheets, statements of operations, comprehensive loss, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's accounting policies, financial instruments, and other relevant disclosures for the period ended March 31, 2023 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (Amounts in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Total Assets | $263,502 | $256,512 | | Total Liabilities | $169,665 | $146,389 | | Total Stockholders' Equity | $93,837 | $110,123 | | Cash and cash equivalents | $46,952 | $47,196 | | Marketable securities | $25,660 | $23,084 | | Long-term debt | $119,035 | $98,475 | | Warrant liability | $1,066 | $1,831 | | Contingent earnout liability | $273 | $349 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Three Months Ended March 31, Amounts in thousands, except per share) | Metric | 2023 | 2022 | Change (%) | | :--------------------------------------- | :----- | :----- | :--------- | | Revenue | $24,168 | $18,070 | 34% | | Cost of revenue | $10,360 | $9,846 | 5% | | Gross profit | $13,808 | $8,224 | 68% | | Research and development | $9,663 | $8,657 | 12% | | Sales and marketing | $6,850 | $6,905 | -1% | | General and administrative | $11,770 | $12,684 | -7% | | Loss from operations | $(14,475) | $(20,022) | 28% | | Net loss | $(17,673) | $(11,792) | -50% | | Basic and diluted net loss per share | $(0.12) | $(0.08) | -50% | Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss (Three Months Ended March 31, Amounts in thousands) | Metric | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Net loss | $(17,673) | $(11,792) | | Foreign currency translation adjustments | $(1,589) | $1,859 | | Net unrealized gain on investments | $44 | — | | Comprehensive loss | $(19,218) | $(9,933) | Condensed Consolidated Statements of Changes in Stockholders' Equity Condensed Consolidated Statements of Changes in Stockholders' Equity (Amounts in thousands) | Metric | December 31, 2022 | March 31, 2023 | | :-------------------------- | :---------------- | :--------------- | | Total Stockholders' Equity | $110,123 | $93,837 | | Net loss | $(17,673) | $(17,673) | | Stock compensation expense | $2,646 | $2,646 | | Foreign currency translation adjustments | $(1,589) | $(1,589) | | Net unrealized gain on investments | $44 | $44 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, Amounts in thousands) | Cash Flow Activity | 2023 | 2022 | | :----------------------------------- | :------- | :------- | | Net cash used in operating activities | $(11,290) | $(14,991) | | Net cash used in investing activities | $(6,957) | $(4,262) | | Net cash provided by financing activities | $19,886 | $733 | | Net decrease in cash, cash equivalents and restricted cash | $(207) | $(17,670) | | Ending balance of cash, cash equivalents and restricted cash | $47,362 | $91,975 | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures supporting the condensed consolidated financial statements, covering the company's business, significant accounting policies, liquidity, macroeconomic impacts, revenue recognition, balance sheet components, debt, leases, fair value measurements, commitments, contingencies, and stock-based compensation Note 1. Nature of Business - Spire Global, Inc. is a global provider of space-based data and analytics, utilizing a proprietary constellation of multi-purpose nanosatellites to offer Maritime, Aviation, Weather, and Space Services solutions[24] - The company was notified by the NYSE on March 24, 2023, of non-compliance with Rule 802.01C regarding the minimum average closing price of its Class A common stock, but this does not result in immediate delisting[28] Note 2. Summary of Significant Accounting Policies - The company reported a net loss of $17,673 thousand and cash used in operations of $11,290 thousand for the three months ended March 31, 2023, but believes it has sufficient working capital for at least one year[34] - A stronger U.S. dollar in Q1 2023 negatively impacted revenue (approx one-third of sales in foreign currencies) but positively impacted expenses (majority of employees outside U.S.)[37] - Increasing interest rates led to higher interest expenses due to the company's floating-rate credit facility, and geopolitical conflicts caused delays in revenue recognition from satellite launch cancellations[39] Note 3. Revenue, Contract Assets, Contract Liabilities and Remaining Performance Obligations Revenue Disaggregation (Three Months Ended March 31, Amounts in thousands) | Category | 2023 Revenue | 2023 % of Total | 2022 Revenue | 2022 % of Total | | :---------------------- | :----------- | :-------------- | :----------- | :-------------- | | Subscription-based | $18,812 | 78% | $12,336 | 68% | | Non-subscription-based | $5,356 | 22% | $5,735 | 32% | | Total Revenue | $24,168 | 100% | $18,070 | 100% | | Geography | 2023 Revenue | 2023 % of Total | 2022 Revenue | 2022 % of Total | | :---------------------- | :----------- | :-------------- | :----------- | :-------------- | | Americas | $12,807 | 53% | $7,614 | 42% | | EMEA | $8,703 | 36% | $7,935 | 44% | | Asia Pacific | $2,658 | 11% | $2,521 | 14% | | Total | $24,168 | 100% | $18,070 | 100% | - As of March 31, 2023, remaining performance obligations not yet recognized as revenue totaled $164,465 thousand, with 35% expected to be recognized over the next 12 months[56] Note 4. Balance Sheet Components Property and Equipment, Net (Amounts in thousands) | Category | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Satellites in-service | $51,207 | $49,889 | | Satellite, launch and ground station work in progress | $19,088 | $15,364 | | Finished satellites not in-service | $3,017 | $4,985 | | Total Property and equipment, net | $58,147 | $53,752 | - Depreciation and amortization expense related to property and equipment decreased to $3,037 thousand for Q1 2023 from $4,834 thousand for Q1 2022[58] Note 5. Goodwill and Intangible Assets Goodwill and Intangible Assets (Amounts in thousands) | Category | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Goodwill | $50,039 | $49,954 | | Total Intangible assets (net of accumulated amortization) | $33,963 | $34,781 | | Amortization expense (intangible assets) (Q1) | $878 | $1,748 | Note 6. Long-Term Debt Long-Term Debt (Amounts in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Blue Torch term loan | $120,359 | $100,511 | | Other long-term debt | $5,016 | $4,857 | | Less: Debt issuance costs | $(6,340) | $(6,893) | | Non-current portion of long-term debt | $119,035 | $98,475 | | Interest expense (Q1) | $4,008 | $1,627 | | Amortization of deferred issuance costs (Q1) | $554 | $1,413 | - The Blue Torch Credit Facility's $19,735 thousand escrowed amount was released to the company in February 2023 after achieving certain metrics. The term loan accrues interest at a floating rate, which was 13.37% SOFR as of March 31, 2023[65] Note 7. Leases Lease Information (Amounts in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Total ROU assets | $12,549 | $11,687 | | Total lease liabilities | $14,027 | $13,148 | | Lease expenses (Q1) | $930 | $870 | | Amortization of ROU assets (Q1) | $224 | $573 | Note 8. Fair Value Measurement Fair Value of Liabilities (Amounts in thousands) | Liability | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Credit Agreement Warrants | $1,066 | $1,831 | | Contingent earnout liability | $273 | $349 | - In connection with the Blue Torch Financing Agreement, the company issued Credit Agreement Warrants exercisable for an aggregate of 3,694,880 shares of Class A common stock at an exercise price of $2.01 per share[84][184][185] Note 9. Commitments and Contingencies - Under the L3Harris Agreement, the company incurs a fixed fee of $358 thousand per month, with total operational fees commitment of $35,973 thousand through August 7, 2031[89][91] - The company is party to various legal actions but management believes their resolution will not have a material adverse effect on the business[92] Note 10. Stock-Based Compensation Stock-Based Compensation Expense (Three Months Ended March 31, Amounts in thousands) | Category | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Cost of revenue | $77 | $77 | | Research and development | $651 | $711 | | Sales and marketing | $437 | $616 | | General and administrative | $1,481 | $885 | | Total stock-based compensation | $2,646 | $2,289 | - As of March 31, 2023, total unrecognized compensation expense related to options and RSUs was $28,107 thousand, expected to be recognized over a weighted-average period of 2.25 years[97] Note 11. Net Loss per Share Net Loss per Share (Three Months Ended March 31) | Metric | 2023 | 2022 | | :---------------------------------------------------------------- | :----------- | :----------- | | Basic and diluted net loss per share | $(0.12) | $(0.08) | | Weighted-average shares used in computing basic and diluted net loss per share | 144,770,908 | 139,274,538 | | Anti-dilutive securities excluded from diluted EPS | 34,616,137 | 46,675,057 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Spire Global's financial condition and results of operations for the three months ended March 31, 2023, compared to the same period in 2022, highlighting key business metrics, macroeconomic impacts, and a detailed analysis of revenue, expenses, and non-GAAP financial measures Overview - Spire Global is a global provider of space-based data, analytics, and Space Services, operating one of the world's largest multi-purpose satellite constellations to collect AIS, ADS-B, and RO data[102] - The company offers three primary data solutions: Maritime, Aviation, and Weather, along with a 'Space Services' solution that provides customized data via API through a subscription model[105][106] Highlights from the Three Months Ended March 31, 2023 Key Financial and Operational Highlights (Three Months Ended March 31, 2023) | Metric | Value | Change from Q1 2022 | | :-------------------------- | :---------- | :------------------ | | Revenue | $24.2 million | +34% | | Annual Recurring Revenue (ARR) | $104.8 million | +28% | | ARR Solution Customers | 781 | +48 from Dec 31, 2022 | | ARR Net Retention Rate | 108% | +2% | | Gross Margin | 57% | +11% | | Operating Loss | $14.5 million | Improved by $5.5 million | - Spire Global was awarded a contract extension by the National Reconnaissance Office (NRO) for commercial radio frequency remote sensing[116] - The company closed a deal with Enqlare for up-to-date vessel information and AIS positions, and entered a long-term agreement with ch-aviation for global flight analytics[116] Macroeconomic and Geopolitical Impact - A stronger U.S. dollar negatively impacted revenue (approx one-third of sales in foreign currencies) but positively impacted expenses (majority of employees outside U.S.) in Q1 2023 compared to Q1 2022[110] - Increasing interest rates led to higher interest expenses due to the company's floating-rate credit facility, and geopolitical conflicts caused scheduling shifts or launch cancellations by third-party satellite providers, delaying revenue recognition[112] - The macroeconomic environment has caused customers to re-evaluate purchases, resulting in additional discounts, extended payment terms, longer sales cycles, and some contract cancellations[111] Key Factors Affecting Our Performance - The company's 'land and expand' business model is evidenced by an increase in ARR Solution Customers from 627 (March 31, 2022) to 781 (March 31, 2023) and an ARR Net Retention Rate of 108% for Q1 2023[116] - Investment in growth included a 12% increase in research and development spending ($1.0 million) and an 11% increase in total headcount (from 381 to 418 employees) from March 31, 2022, to March 31, 2023[118] - Approximately 31% of Q1 2023 revenues were generated in non-U.S. dollar currencies, making the company susceptible to foreign exchange rate fluctuations[120] Key Business Metrics Key Business Metrics (As of March 31, Amounts in thousands) | Metric | 2023 | 2022 | Change (%) | | :-------------------------- | :--------- | :--------- | :--------- | | Annual Recurring Revenue (ARR) | $104,763 | $81,638 | 28% | | ARR Customers | 755 | 604 | 25% | | ARR Solution Customers | 781 | 627 | 25% | | ARR Net Retention Rate | 108% | 106% | 2% | - ARR growth was driven by acquiring new customers and increasing business with existing customers, reflected in the increase in ARR Customers and an ARR Net Retention Rate above 100%[122] Components of Results of Operations - Revenue is primarily derived from subscription-based data, insights, and cloud-based technology platform access, with subscription periods typically ranging from one to two years[130] - Cost of revenue includes personnel costs, depreciation, hosted infrastructure, third-party operating/royalty costs, and amortization of purchased intangibles, with satellite and ground station costs capitalized and depreciated[131][132] - Operating expenses (R&D, Sales & Marketing, G&A) are expected to increase in absolute dollars with business growth but decrease as a percentage of revenue over time[150] Results of Operations Revenue and Gross Profit Analysis (Three Months Ended March 31, Amounts in thousands) | Metric | 2023 | 2022 | Change (%) | | :---------------- | :----- | :----- | :--------- | | Revenue | $24,168 | $18,070 | 34% | | Cost of revenue | $10,360 | $9,846 | 5% | | Gross profit | $13,808 | $8,224 | 68% | | Gross margin | 57% | 46% | 11% | | Subscription revenue % | 78% | 68% | 10% | | Americas revenue % | 53% | 42% | 11% | | EMEA revenue % | 36% | 44% | -8% | | APAC revenue % | 11% | 14% | -3% | Operating Expenses Analysis (Three Months Ended March 31, Amounts in thousands) | Metric | 2023 | 2022 | Change (%) | | :-------------------------- | :----- | :----- | :--------- | | Research and development | $9,663 | $8,657 | 12% | | Sales and marketing | $6,850 | $6,905 | -1% | | General and administrative | $11,770 | $12,684 | -7% | Other Income (Expense) Analysis (Three Months Ended March 31, Amounts in thousands) | Metric | 2023 | 2022 | Change (%) | | :--------------------------------------- | :----- | :----- | :--------- | | Interest income | $565 | $14 | * | | Interest expense | $(4,578) | $(3,043) | 50% | | Change in fair value of contingent earnout liability | $76 | $6,883 | -99% | | Change in fair value of warrant liabilities | $746 | $5,835 | -87% | | Foreign exchange | $1,024 | $(935) | -210% | | Other expense, net | $(762) | $(234) | 226% | | Income tax provision | $269 | $290 | -7% | Non-GAAP Financial Measures - Adjusted EBITDA is used to evaluate business performance, excluding non-cash expenses like stock-based compensation, changes in fair value of warrant/earnout liabilities, foreign exchange gains/losses, and acquisition-related amortization/expenses[165][167] Reconciliation of Net Loss to Adjusted EBITDA (Three Months Ended March 31, Amounts in thousands) | Metric | 2023 | 2022 | | :--------------------------------------- | :------- | :------- | | Net loss | $(17,673) | $(11,792) | | Depreciation & amortization | $3,916 | $4,834 | | Interest, net | $4,013 | $3,029 | | Taxes | $269 | $290 | | EBITDA | $(9,475) | $(3,639) | | Change in fair value of contingent earnout liability | $(76) | $(6,883) | | Change in fair value of warrant liabilities | $(746) | $(5,835) | | Foreign exchange (gain) loss | $(1,024) | $935 | | Other expense, net | $762 | $234 | | Stock-based compensation | $2,646 | $2,289 | | Mergers and acquisition related expenses | $1,015 | $3,014 | | Other acquisition accounting amortization | $166 | $183 | | Adjusted EBITDA | $(6,732) | $(9,702) | Liquidity and Capital Resources Liquidity Position (Amounts in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :------------------------------------------------ | :------------- | :---------------- | | Cash and cash equivalents | $46,952 | $47,196 | | Marketable securities | $25,660 | $23,084 | | Total Liquidity | $72,612 | $70,280 | - As of March 31, 2023, the company had approximately $17.5 million in cash and cash equivalents at Silicon Valley Bank (now a division of First Citizens Bank), with $17.1 million invested in BlackRock money market mutual funds[175] - The company has an Equity Distribution Agreement to sell up to $85.0 million of Class A common stock, with no sales made as of March 31, 2023[176] Cash Flows Summary (Three Months Ended March 31, Amounts in thousands) | Cash Flow Activity | 2023 | 2022 | | :----------------------------------- | :------- | :------- | | Net cash used in operating activities | $(11,290) | $(14,991) | | Net cash used in investing activities | $(6,957) | $(4,262) | | Net cash provided by financing activities | $19,886 | $733 | Critical Accounting Policies and Estimates - There have been no material changes to the company's critical accounting policies and estimates compared to those disclosed in the 2022 Form 10-K[205] Accounting Pronouncements Recently Adopted and Not Yet Adopted - Refer to Note 2 of the unaudited condensed consolidated financial statements for details on recently adopted and not yet adopted accounting pronouncements[206] Emerging Growth Company Status - The company is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised accounting standards[207] Smaller Reporting Company Status - The company is a 'smaller reporting company' and benefits from reduced disclosure obligations, including providing only two years of audited financial statements[208] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, specifically foreign currency exchange risk, interest rate sensitivity, and inflation risk, and discusses their potential impact on financial results - The company is exposed to foreign currency exchange risk, particularly with the Euro, British Pound Sterling, Singapore Dollar, and Canadian Dollar. For Q1 2023, a $1.0 million foreign exchange gain was recognized, compared to a $0.9 million loss in Q1 2022[209][210] - A hypothetical 10% strengthening or weakening of the U.S. dollar would result in an approximate $0.7 million increase or decrease in the Q1 2023 pre-tax loss[210] - The company is exposed to interest rate fluctuations due to its floating-rate Blue Torch Credit Facility (13.37% SOFR as of March 31, 2023); a 100 basis point increase would impact annual operations by approximately $1.2 million[212] - While inflation has not substantially impacted Q1 2023 or Q1 2022 results, a higher future inflation rate could negatively affect operational and capital expenditures[213] Item 4. Controls and Procedures This section discusses the evaluation of the company's disclosure controls and procedures, identifies material weaknesses in internal control over financial reporting, and outlines the remediation efforts undertaken - Management concluded that disclosure controls and procedures were not effective as of March 31, 2023, due to identified material weaknesses in internal control over financial reporting[215] - Material weaknesses include an ineffective control environment (insufficient accounting knowledge, segregation of duties), ineffective risk assessment, inadequate controls over non-routine transactions (warrant instruments, business combinations, contingent earnout liability), and ineffective IT general controls (user access, program change management, program development)[217][219] - Remediation efforts include hiring key accounting professionals, engaging third-party consultants for risk assessment and technical accounting, and designing/implementing automated controls for segregation of duties and IT general controls[221][222][224][226][227] - Despite the material weaknesses, management concluded that the condensed consolidated financial statements for the periods covered are prepared in accordance with GAAP and fairly present the company's financial position, results of operations, and cash flows[216] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings in the normal course of business but does not currently anticipate any material adverse effects on its financial condition or operations from these matters - The company is party to various claims and legal actions arising in the normal course of business[92][233] - Management believes that the resolution of all such pending matters will not have a material adverse effect on the company's business, results of operations, financial condition, or cash flows[92][234] Item 1A. Risk Factors This section updates the risk factors from the previous annual report, specifically adding a new risk related to NYSE listing compliance and replacing a previous risk factor concerning reliance on government customers - The company was notified on March 24, 2023, of non-compliance with NYSE Rule 802.01C (minimum average closing price of $1.00 over 30 trading days). Failure to regain compliance could lead to delisting, negatively affecting stock price, liquidity, and financing ability[236][237] - The company relies on a limited number of government customers, which accounted for approximately 46% of Q1 2023 revenues, with three government customers generating about 70% of that. Government contracts can be terminated at any time, as exemplified by NOAA's intent not to renew a weather contract (expected $9.9 million revenue impact)[238] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - No unregistered sales of equity securities and use of proceeds were reported[240] Item 3. Defaults Upon Senior Securities This item is not applicable to the current report - This item is not applicable[241] Item 4. Mine Safety Disclosures This item is not applicable to the current report - This item is not applicable[242] Item 5. Other Information No other information was reported for the period - No other information was reported[243] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including corporate documents, certifications, and XBRL taxonomy documents - The exhibits filed include the Certificate of Incorporation, Bylaws, Certifications of the Principal Executive Officer and Principal Financial Officer, and various Inline XBRL Taxonomy Extension Documents[245][246] Signatures Signatures This section contains the required signatures of the registrant's principal executive officer and principal financial officer, certifying the report - The report was signed by Peter Platzer, Chief Executive Officer, and Thomas Krywe, Chief Financial Officer, on May 10, 2023[251]